AN ECONOMIC ANALYSIS OF OFF-SEASON CAPSICUM/BELL PEPPER PRODUCTION IN PUNJAB, PAKISTAN

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1 AN ECONOMIC ANALYSIS OF OFF-SEASON CAPSICUM/BELL PEPPER PRODUCTION IN PUNJAB, PAKISTAN Qamar Ali 1, 2, Muhammad Ashfaq 1 and Muhammad Tariq Iqbal Khan 1, 3 1 Institute of Agricultural and Resource Economics, University of Agriculture, Faisalabad, Pakistan 2 Department of Economics, Virtual University of Pakistan, Faisalabad Campus, Pakistan 3 Department of Economics, Govt. Degree College, J.B. (Jhang), Punjab, Pakistan qamarrana276@gmail.com ABSTRACT Off-season vegetable production can achieve recommended vegetable consumption with high profit. This study calculated the per acre costs, returns and determinants of revenue in off-season capsicum/bell pepper production. Primary data from 70 farmers were collected with stratified random sampling. Production cost was more for medium farmers (Rs. 647,858.04) followed by small (Rs. 646,990.34) and large (Rs. 621,692.93) farmers. Medium farmers had more production (56, kg) while small farmers earned more revenue (Rs. 1,392,869.57) and price (Rs kg -1 ). BCR shows that a small farmer earns Rs by investing rupee one than medium (Rs. 2.13) and large (Rs. 2.00) farmers. Age, education, experience, polythene sheet cost and pesticide cost had a positive and significant impact on revenue. R 2 (0.852) and f-value (38.271) showed goodness of the model. High investment, price fluctuation, disease attack and lack of extension services were main problems. Government should take steps to eliminate these problems. Keywords: benefit cost ratio, Cobb-Douglas, gross income, net income, vegetables. INTRODUCTION Food security and poverty elimination are possible results of vegetable production. Vegetables are important for agrarian economy because of domestic consumption and foreign exchange earnings [1]. These are important for human health due to provision of balanced nutrition, protein, minerals, carbohydrate and vitamins [2]. Annual per capita vegetable use in Pakistan (35.6 kg) was less than recommended use (73 kg) according to WHO [3]. In Pakistan, vegetables are considered as minor crops with limited research [4]. Capsicum or Bell pepper or Hot pepper (Capsicum annum L.) is a crop of Solanaceae family and its genus is Capsicum. It is also known as green pepper or shimla mirch [5]. It has a large variety and its production showed increasing trend in recent years. It provides vitamin A, C and E and is useful against flu-colds. It is a source of thiamine, beta carotene, folic acid and vitamin B6. It is used in different shapes like green, condiments, spices, pickles and sauces. It gives special beauty, flavour and taste in eating items [6]. Pepper is a globally produced crop except Antarctica, and its historical link was found with the famous voyage of Columbus. Columbus introduced hot pepper in Europe as well as in Africa and Asia. It spread quickly in Europe and from Europe to Japan, India and China [7]. Global production of capsicum was 11 million metric tons in 1990 and become 28 million metric tons in The largest capsicum producers were China (50%) followed by Mexico (7%) and Turkey (7%) while 15% produce comes from Indonesia, United States, Nigeria and Spain. Area under green pepper production was above 1.8 million hectares in the world [8]. In Pakistan, the area under dry chilies was 62,742 hectares in and 63,617 hectares in Total production of chilies was 145,856 tonnes in and 149,162 tonnes in Yield of dry chili was 2,108.9 kg per hectare in and 2,126.9 kg per hectare in So, the area and total production showed 1.38% and 2.22% decrease, respectively while yield was decreased by 0.85%. In Punjab, the area under dry chilies was 5,612 hectares in and 6,080 hectares in Total production of chilies was 9,020 tonnes in and 9,625 tonnes in Yield of dry chili was 1,458 kg per hectare in and 1,436 kg per hectare in So, the area and total production showed 7.69% and 6.29% decrease, respectively while yield was increased by 1.53% [9]. By the blessing of Allah Almighty, Pakistan has good and suitable climate for vegetable production in different zones. The demand of fruits and vegetables was high round the year and prices were higher at the start and end of season [10]. Increase in vegetable area is difficult because it disturbed the cropping pattern. However a better option is to increase the yield with high yield varieties and introducing new technologies [11]. Low temperature at night, high rainfall, energy, frost, higher relative humidity, cold wind and water logging are main hurdles in open field growing of bell pepper. An alternative and successful option is the use of poly or plastic tunnel. Protected structures become a barrier and played an important role in integrated pest management because it stops the spreading of pests, insects and viruses. It was found that the crop showed better yield, good economics and less disease attack under polyhouses [12]. Temperature and moisture level is also controlled in poly tunnels [10]. Off-season vegetables reached two weeks earlier in the market and helpful to eliminate the demand gap. Pakistan shows increasing area under polythene tunnel with 2 to 3 time more yield [13]. Presently, farmers have less knowledge about capsicum growing in off-season. Therefore, the aim of present study was the calculation of total production cost, 424

2 total revenue, gross margin, net income, benefit-cost ratio and determinants of revenue. MATERIALS AND METHODS Primary data were collected from districts Faisalabad and Toba Tek Singh in 2014 with the help of comprehensive and pre-tested questionnaire. Poate and Daplyn [14], cited in Mari [15] found it appropriate to collect primary data from 60 respondents for decision purpose in case of large population. Therefore, 70 offseason capsicum growers were interviewed with stratified random sampling. Stratifies random sampling is used when it is required to divide the population into different sub groups like small, medium and large farmers for current study and a random sample is taken from each sub group [16]. Small famers have less than 12.5 acres, = h Ten percent of the purchase price is called as salvage value and total depreciation is a part of fixed cost. But, the annual depreciation value was converted in seven months because the total time period of capsicum in offseason is a seven month on average. Interest on total initial investment and total variable cost were also calculated by [18] by using 8% rate of interest. Seven month land rent was included in fixed cost. Abyana (canal water charges) is considered as fixed cost as mentioned by Noonari et al., [19]. Usman and Ashfaq [20] used different formulas for benefit-cost ratio, gross margin and net income expressed below: Benefit Cost Ratio (BCR) It shows amount of money received with the investment of one rupee in the form of total cost. = Gross Margin = Where, GM = Gross Margin TR = Total Revenue VC = Variable Cost Net Income medium famers have more than 12.5 acres and less than 25 acres while large farmers have more than 25 acres of operational land holdings [17]. Estimation of Costs and Returns Total cost and total revenue were calculated in capsicum production under polythene tunnel. Different variable costs were calculated like cost of tunnel preparation, land preparation, seed, seedling transplantation, hoeing, fertilization, pesticides, irrigation, earthling up, picking and marketing. Tunnel cost consists of cost on bamboos or iron pipes, string, iron wire, nut bolt, mulching sheet, polythene sheet, transportation and labour. Iron pipes, bamboos and iron wire were used for more than one year. So, their depreciation value was calculated with formula written by [18] expressed as: = Where, NI = Net Income TR = Total Revenue TC = Total Cost One-way analysis of variance (ANOVA) One-way analysis of variance is used to check the difference in mean value of different sub groups [21]. Null and alternative hypothesis are: Null hypothesis H 0 Alternative hypothesis H 1 : = = : According to null hypothesis, the mean values are same for all sub groups and vice versa in case of alternative hypothesis. Econometric model specification Mathematical properties, easiness in computation and interpretation are major benefit of Cobb-Douglas model as mentioned by Heady and Dillon [22], cited in Usman and Ashfaq [20]. Beattie and Taylor [23] used logarithmic transformation of Cobb-Douglas model because coefficient estimation is easier in linear form which is given below: lny = lna + β lnx + β lnx + β lnx + β lnx + β lnx + β lnx + β lnx + β lnx + β lnx + lnu i Where; Y = Average revenue (Rs.) X 1 = Age (Years) X 2 = Education (Years) X 3 = Growing experience (Years) X 4 = Polythene sheet cost (Rs.) X 5 = Land preparation cost (Rs.) X 6 = Seed (Kg.) X 7 = NPK cost (Rs.) X 8 = Pesticide cost (Rs.) X 9 = Irrigation cost (Rs.) ln = Natural logarithm a = constant Ui = Error term which included the effect of unexplained factors on yield. 425

3 β 1 β 12, are coefficients of estimates in the model. RESULTS AND DISCUSSIONS Table-1 reveals the socio-economic characteristics and means difference by using one-way analysis of variance. Average age was more for small farmers (45.39 years). The difference in mean value of age was non-significant at 5% level of significance. Average schooling year was for large farmer which was higher than others and the difference in mean value of education was highly significant. Average operational land was more (93.09 acres) for large farmers and their mean difference was highly significant. Experience in the production of off-season capsicum was higher for large farmers (5.10 years) and the difference in experience was insignificant. Generally large farmers had more financial resources and they tried new technology earlier. However, tunnel farming gains equal popularity among all farmers in recent years. Average value of cultivation area under this vegetable was more for large farmers (6.60 acres) and the difference in mean was also significant. Table-1. Mean and variance analysis of socio-economic characteristics of farmers. Particulars Farm size category One-way ANOVA Small Medium Large F-value Sig. Age (years) Education (years) Total operational holding (acres) Off-season capsicum experience (years) Off-season capsicum area (acres) Table-2 depicts the per acre average cost in offseason capsicum production. On average, large farmer spend more financial resources on tunnel material (Rs. 56, ), fertilization (Rs. 76, ) and hoeing (Rs. 5, ). On average, expenditure of medium farmers was higher on land preparation (Rs. 14, ), seedling transplantation (Rs. 4,691.67), irrigation (Rs. 10, ), picking (Rs. 63,888.89) and marketing (Rs ). On average, small farmer spend more money on seed (Rs. 34,984.78) and pesticide (Rs. 35, ). On average, total variable cost was more for medium farmer (Rs. 535,001.25) followed by small (Rs. 534,584.78) and large farmers (Rs. 522, ). Seven months land rent (Rs. 31, ) and interest on initial investment (Rs. 17, ) was higher for large farmers. Depreciation (Rs. 12, ), interest on variable cost (Rs. 42, ), administrative cost (Rs. 16, ) and abyana (Rs ) was higher for medium farmer. On average, per acre total production cost was more for medium farmers (Rs. 647,858.04). In India, Singh et al., [12] and Sreedhara et al., [5] also estimated the total production cost in capsicum production under protected conditions which was Indian rupees m -2 (Rs. 312, acre -1 ) and Indian rupees per 0.25 acres (Rs. 345, acre - 1 ), respectively. 426

4 Production practices Table-2. Average input costs acre -1 (Rs.). Farm size category Small Medium Large Tunnel Material* Land Preparation Seed Seedling Transplantation Fertilization Hoeing Pesticide Irrigation Picking Marketing Total Variable Cost (0.535)** (0.535)** (0.522)** Depreciation Interest on initial investment Interest on variable cost Administrative cost 3% of variable cost) Land Rent (Seven Months) Abyana Total Cost (0.647)** (0.648)** * It includes cost of string, nut bolt, polythene sheet, mulch sheet, labour charges. **Amount in Million Rupees (0.622)** Table-3 explained that production was higher for medium farmers (56, kg acre -1 ). Price received was higher for small farmers (Rs kg -1 ) than medium (Rs kg -1 ) and large farmer (Rs kg -1 ). The difference in the average price was found insignificant. On average, total revenue was more for small farmers (Rs. 1,392, acre -1 ). Both gross margin and net income were more for small farmer which were Rs. 858, and Rs. 745,879.22, respectively. Benefit-Cost ratio (BCR) was higher for small farmers (2.15) followed by medium (2.13) and large (2.00) farmers. It showed that small farmer received Rs in return after investing rupee one in off-season capsicum production. Singh et al., [12] estimated the yield (11.34 kg m -2 ), gross income ( Indian rupees m -2 ), net return (115,279 Indian rupees per 0.25 acre) and BCR (3.68). Sreedhara et al., [5] also found the yield (5.55 tons), average price (27.88 Indian rupees kg -1 ), total return (154,734 Indian rupees), net return (115,279 Indian rupees) and BCR (3.92) on per 0.25 acre basis. 427

5 Indicator/Unit Table-3. Economic analysis. Farm size category Small Medium Large Production (Kg) Average Price (Rs. Kg -1 ) Average Cost (Rs. Kg -1 ) Total Revenue (Rs.) (1.393)* (1.355)* (1.235)* Gross Margin (Rs.) (0.858)* (0.820)* (0.730)* Net Income (Rs.) (0.746)* (0.708)* (0.614)* BCR *Amount in Million Rupees Table-4 explored the coefficients of Cobb- Douglass production model. The value of R 2 was and adjusted R 2 was It depicts that our model explained 85.2% variations in revenue due to variations in explanatory variables. The R 2 was 79.4% in dry season vegetables found by Ibekwe and Adesope [24] and 85.4% in capsicum production found by Patel et al., [25]. The f- value represents the overall goodness of the model and its value was and highly significant. The coefficient of age was positive (0.22) and significant at 5% significance level. The education effect was positive (0.06) and significant at 5.8% significance level and in line with Ibekwe and Adesope [24] and Mohammed [26]. Role of education is inevitable for understanding the new technology and results showed the increase in revenue was 0.06% with 1% increase in the level of education. The effect of experience was positive (0.04) and significant at 6.5% significance level and in line with Ibekwe and Adesope [24]. The impact of polythene sheet cost was positive (0.36) and highly significant which indicates that revenue was increases by 0.36% when a farmer spend 1% more money on polythene sheet. Polythene sheet quality is useful because it maintain temperature and moisture in the tunnel but some growers purchase low quality polythene sheet at lower price. Heavy wind, rainfall and other related factors deteriorate a low quality polythene sheet earlier. The regression coefficient was positive (0.02) but highly insignificant for land preparation cost. The impact of seed quantity was negative (-0.12) and insignificant and same with Illo et al., [27]. The coefficient of cost of fertilizer was negative (- 0.05) and significant which depicts a negative effect (0.04%) on revenue due to 1% rise in fertilization cost. The coefficient of regression was positive (0.15) and highly significant for pesticide cost. Disease attack is common in vegetable production as told by respondents. So, a rise in pesticide cost (1%) results in the increase in revenue (0.15%). The irrigation coefficient was positive (0.00) and highly insignificant and it was in line with Patel et al., [25]. Table-4. Regression results of Cobb-Douglass production function. Variable Unit B t-value p-value Constant ln-age years ln-education years ln-off-season capsicum experience years ln-polythene sheet cost Rs ln-land preparation cost Rs ln-seed quantity kg ln-npk cost Rs ln-pesticide cost Rs ln-irrigation cost Rs R Adjusted-R F-ratio

6 CONCLUSIONS Off-season capsicum production is an economical activity and it was in line with some cross country studies by Singh et al., [12], Sreedhara et al., [5] and Illo et al., [27]. Higher production cost (Rs. 647,858.04) and production (56, kg) was recorded in case of medium farmers. Small farmers received higher selling price, revenue, gross margin and net income than others. The Benefit-Cost ratio (BCR) was higher (2.16) for small farmers and less (2.00) for large farmers. The impact on revenue was positive and significant in case of age, education, off-season capsicum growing experience, polythene sheet cost and pesticide cost. The model was good on the basis of R 2 (0.852) and f-value (38.271). High investment, price fluctuations and disease attack are main problems told by growers. Therefore, farmers prefer to cultivate staple food crop in rabi season like wheat due to attractive support price. Subsidy in tunnel construction is required especially for small farmers because they have less financial resources and compete with large farmers by using bamboo and sticks for tunnel preparation instead of iron pipes. More extension visit and guidance about inputs like fertilizer and pesticide is the responsibility of extension department. But many farmers told that the technical guidance is not enough from government. In past, government established farmer s field schools and provide subsidy on tunnel material which put a positive impact on this activity. Government should continue such kind of activities for this profitable business. Education and training are also necessary because the need of extension services is less for an educated and trained farmer. Government as well as private sector should also develop disease resistance and high yielding varieties. REFERENCES [1] Ishaq M, G. Sadiq and S.H. Saddozai An estimation of cost and profit functions for off season cucumber produce in district Nowshera. Sarhad Journal of Agriculture. 19: [2] Maurya G.P., V. Pal, G.P. Singh and L.K. Meena An economic analysis of cucumber cultivation in Sultanpur district of Uttar Pradesh (India). International Journal of Agricultural Science and Research. 5: [3] Abedullah, K. Bakhsh and B. Ahmad Technical efficiency and its determinants in potato production, evidence from Punjab, Pakistan. The Lahore Journal of Economics. 11: [4] Bakhsh K An analysis of technical efficiency and profitability of growing potato, carrot, radish and bitter gourd: A case study of Pakistani Punjab. Ph.D. thesis, University of Agriculture, Faisalabad, Pakistan. [5] Sreedhara D.S., M.G. Kerutagi, H. Basavaraja, L.B. Kunnal and M.T. Dodamani Economics of capsicum production under protected conditions in Northern Karnataka. Karnataka Journal of Agricultural Sciences. 26: [6] Komla A.N Effect of organic mulch on growth and yield of sweet pepper (Capsicum Annuum L). M.Phil. thesis, University of Ghana, Legon. [7] Jalu N.N Response of hot pepper (capsicum annuum l.) to mulching and plant spacing at Bako, West Shoa zone, Ethoipia. MSc, Haramaya University. [8] Tesfaw A Benefit-cost analysis of growing pepper: A trial at west Gojjam, near the source of blue Nile. International Journal of Agriculture and Crop Sciences. 6: [9] Government of Pakistan (GOP) Fruit, vegetables and condiments statistics of Pakistan Ministry of National Food Security & Research, Islamabad. [10] Government of Pakistan (GOP) Pre-feasibility study (off-season vegetable farming high tunnel). Small and Medium Enterprises Development Authority, Ministry of Industries and Production, Lahore, Pakistan. [11] Khan Z., A.H. Shah, R. Gul, A. Majid, U. Khan and H. Ahmad Morpho agronomic characterization of cucumber germplasm for yield and yield associated traits. International Journal of Agronomy and Agricultural Research. 6: 1-6. [12] Singh A.K., B. Singh and R. Gupta Performance of sweet pepper (Capsicum Annum) varieties and economics under protected and open field conditions in Uttarakhand. Indian Journal of Agricultural Sciences. 81: [13] Iqbal Q., M. Amjad, M.R. Asi, M.A. Ali and R. Ahmad Vegetative and reproductive evaluation of hot peppers under different plastic mulches in poly/plastic tunnel. Pakistan Journal of Agricultural Sciences. 46: [14] Poate C.D., P.F. Daplyn Data for Agrarian Development. Cambridge University Press. [15] Mari F.M Structure and efficiency analysis of vegetable production and marketing in Sindh, 429

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